25 November 2019

INTERCEDE GROUP plc

('Intercede', the 'Company' or the 'Group')

Interim Results for the Six Months Ended 30 September 2019

Intercede, the leading specialist in digital identity, credential management and secure mobility, today announces its interim results for the six months ended 30 September 2019.

The financial information in the following pages reflects the impact of IFRS 16 Leases. IFRS 16 has been applied retrospectively and the impact on each line of the Consolidated Financial Statements is explained in Notes 1 and 6.

Financial Highlights

·     Revenues increased by 5% to £4.4m (2018: £4.2m) reflecting a strong end to the half with orders received from both new and existing customers.

·      Operating expenses reduced by 9% to £4.3m (2018: £4.8m), which reflects staff cost savings and continued tight control of overheads.

·      A return to operating profit of £25,000 (2018: £609,000 operating loss), the first time this has been achieved since the corresponding period six years ago.

·      A profit for the period of £0.2m (2018: profit of £0.1m) resulted in a basic profit per share of 0.4p and a fully diluted profit per share of 0.3p (2018: basic and fully diluted profit per share of 0.2p).

·      Cash balances of £5.2m at 30 September 2019 have increased by £1.5m over the last 12 months, primarily driven by positive cash generation from operations.   

Operating Highlights

·      The sales team has been strengthened, including the hiring of a new partner manager who is tasked with enhancing our partner program. The establishment and further development of partner relationships is critical for the Group's future growth prospects.

·      Launch of the Innovation Hub, an internal team tasked with guiding the future architecture and functionality of Intercede products and improving how we develop and deliver software and services.

·      Release of MyID Professional; a simplified version of MyID targeting the large addressable market of mid-market enterprises to enable them to step up to the strongest form of user authentication with least cost and risk.

Chuck Pol, Chairman, said:

"The results we are announcing today do not represent the full story of the progress that has been made to refocus the Group's strategy towards sustainable revenue growth and profitability.

The return to a first half operating profit, the first time this has been achieved for six years, is an important milestone. The laser focus on our new strategy is evident, particularly in the growth of our cash balances and our dedication to writing the best code in the industry. The release of MyID Professional represents a more scalable version of MyID that gives our customers and partners the strongest form of user authentication in a simplified lower cost format. 

There remains further work to be done, but the direction of travel and momentum in the business reflects the considerable achievements of the Intercede Team to date - we remain on track."

ENQUIRIES

Intercede Group plc                                                             Tel. +44 (0)1455 558 111

Klaas van der Leest, Chief Executive

Andrew Walker, Finance Director

finnCap                                                                                  Tel. +44 (0)20 7220 0500

Stuart Andrews, Corporate Finance

Simon Hicks, Corporate Finance

About Intercede

Intercede is a UK-headquartered, AIM listed (LSE:IGP) cybersecurity company with a US office in Reston, VA.

Founded more than 20 years ago, Intercede has continued to innovate its software platform. Today, MyID® credential management software helps governments and enterprises around the world issue and lifecycle manage millions of citizen and workforce digital identities. Interoperable identity management software facilitates strong multi-factor authentication across mobile devices, smart cards, USB tokens and virtual smart cards.

It is our vision to safeguard the integrity of connected workforces, supply-chains, citizens and industrial technologies for the world's businesses and governments that will not compromise on cybersecurity.

For more information visit: www.intercede.com

The information communicated in this announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) No. 596/2014.

INTERCEDE GROUP plc

('Intercede', 'the Company' or 'the Group')

Interim Results for the Six Months Ended 30 September 2019

Interim Management Review

Introduction

As noted in the Annual Report for the year ended 31 March 2019, action has been taken by the new management team to refocus the Group's strategy towards sustainable revenue growth and profitability. Evidence of this turnaround has been visible inside the business for some time and is now increasingly evident in the financial performance. Revenues for the six months ended 30 September 2019 are 5% higher when compared to the same period last year. There has been a 9% fall in operating expenses versus the same period last year and it is pleasing to note that cash balances have increased from £3.6m to £5.2m over the past year. The return to a first half operating profit, the first time this has been achieved in six years, is an important milestone and validates the new strategy and its execution.

Strategy

In the 2019 Annual Report we also talked about an outlook that focuses on organic growth through the execution of a strategy centred around colleagues, customers, channels and cash. Actually, this 4C strategy is missing a fifth 'C', which is 'code'. Intercede takes great pride in having colleagues who are able to write the best code in the industry to satisfy some of the most demanding customers in the world, including industry majors as well as governments, the military and banks.

1.   Colleagues

Staff motivation remains a priority and an Employee Working Group has been established to follow up on regular periodic employee surveys and turn suggestions for improvement into actions. We continue to provide support to colleagues wherever it is needed to ensure a good work/life balance and to empower them to continue to deliver strong results. We appreciate and continue to be impressed by the considerable achievements of our colleagues.

Over the period, progress has been made in strengthening specific areas of the business, particularly the sales team with new additions in the UK and US offices. We are also pleased to welcome Rob Chandhok back to the Intercede Board as an independent Non-Executive Director. Rob served as a Non-Executive Director between April 2015 and January 2017 and brings more than 20 years of experience and expertise in software and embedded systems.

2.   Customers

As outlined below in the Financial Results section, we have received some significant follow on orders from existing customers, which provides tangible evidence our secure credential management software continues to deliver measurable business value.

We have sold three new deployments to the US Navy, US Airforce and one of the largest US wireless network operators. All of these deals were for our traditional smartcard solution although it should also be noted that we are continuing to see orders, along with strong interest and bid activity, for Derived PIV solutions. Derived PIV is effectively mobile PIV and enables a cryptographic credential to be passed into the secure area of a mobile device, instead of a traditional smartcard. With Derived PIV, US Federal government and military personnel have the flexibility to use their mobile devices as an alternative factor of strong authentication in a NIST SP800-157 and FIPS 201-2 compliant manner.

3.   Channels

The establishment and further development of partner relationships is critical for the Group's future growth prospects. MyID is a Credential Management System (CMS) that forms part of a wider identity ecosystem, so technology partnerships are crucial to ensure that MyID works with the devices and technology our customers want to use.

Intercede also utilises its global network of reseller partners to provide the global footprint to locally deliver the cyber security solutions our customers need. As part of the strengthening of the sales function we have hired a new partner manager who is tasked with enhancing our partner program. This will be designed to engage, enable and reward partners for their commitment to expanding our reach into targeted markets. It will include core product training, joint marketing support and the establishment of a partner portal (for online support) and a partner advisory board to better inform the MyID product roadmap.

Good progress has been made in the past six months working closely with technology as well as channel partners on new opportunity generation in our chosen markets.

4.   Code

Innovation is in Intercede's DNA and recently we launched the Innovation Hub, an internal team tasked with two primary goals:

1.   To guide the future architecture and functionality of Intercede products.

2.   To improve how we develop and deliver software and services.

The prementioned US identification standards for Federal employees and contractors (NIST SP800-157 and FIPS 201-2) are set to evolve further with the forthcoming FIPS 201-3 update, which proposes the expansion of Derived PIV credentials onto a wider range of devices. FIPS 201 compliance has been of strategic importance to Intercede since it was created and the Innovation Hub team are looking at FIDO authentication, which is likely to be included as an option under FIPS 201-3. The FIDO Alliance is made up of hundreds of global technology leaders who are focused on providing open and free authentication standards to help reduce the world's reliance on passwords and SMS OTPs (one-time passwords).

The Innovation Hub is also looking at changing MyID's architecture to use REACT and REST to create a more intuitive web user interface and enhance our mobile capabilities. This is important for the future of large-scale mobile credential opportunities, such as national ID deployments, as one of the benefits REACT/REST will provide a faster more reliable credential issuance process at high volumes.

In order to address the requirements for channels as well as end users, MyID Professional has been developed and was recently launched in September 2019 further underlining Intercede's ability to innovate and deliver.

5.   Cash

The Group's financial stability, control environment and management information have been significantly improved since action was taken to deliver sustainable revenue growth and profitability. This improved operational performance is reflected in the level of cash generated from operations totalling £1,841,000 (2018: £739,000). Cash continues to be king; not only in the sense that it is required to meet upcoming financial obligations but also because it is required for strategic investment in the other 4C's.

Financial Results

Revenue in the period totalled £4,364,000, a 5% increase compared to the corresponding period last year. This reflects a strong end to the half with second quarter total orders exceeding first quarter total orders by a ratio of almost 4:1. This trend of increasing orders over the period is promising and indeed some of the second quarter orders will generate revenue over the next 12 months. It is also pleasing to note the longer-term trend of Intercede's revenue. Revenue for the six months ended 30 September 2016 was £2,828,000 and the growth from this starting point represents compound average growth of 16% over the three corresponding periods to 30 September 2019.

Revenue highlights for the period include:

−      Follow-on MyID license sales to an existing US Federal agency customer, totalling 75,000 devices, spread across two different deployments. One of these deployments will enable users to issue Derived PIV credentials to a mobile device using their original PIV card.

−      The same US Federal agency customer has also ordered professional and development services in excess of $0.5m, to implement a 35,000 device deployment purchased in the corresponding period last year.

−      An additional 35,000 licenses sold to a government in the Middle East operating an e-Government services portal.

−      A follow-on MyID license sale for 20,000 devices to one of the world's largest Aerospace & Defence contractors.

−      A new MyID license sale to provide a traditional smartcard deployment for one of the largest US wireless network operators.

−      A new MyID license sale to a US Navy force providing surveillance systems.

−      A new MyID deployment sale to an existing US Airforce customer for a forward deployment based in the Middle East.

All of these wins are expected to generate incremental revenue over the next 12 months from a combination of support & maintenance plus professional services, development and/or follow-on license sales.

Compared to the corresponding period last year, operating expenses have been reduced by 9% to £4,329,000 (2018: £4,768,000). This reflects staff cost savings and continued tight control over all areas of expenditure. Staff costs continue to represent the main area of expense, representing 87% of total operating costs (2018: 83%). Intercede had 82 employees and contractors as at 30 September 2019 (30 September 2018: 85). The average number of employees and contractors during the period was 82 (2018: 89). It should be noted that this 8% year on year reduction in employees and contractors reflects efficiency improvements in operational delivery and has not impacted upon Intercede's ability to deliver MyID solutions or to implement the 5C strategy.

A £447,000 taxation credit for the period (2018: £993,000 taxation credit) primarily reflects the 2019 Research & Development ("R&D") claim which results from the Group's strategic investment activities. The Group is a beneficiary of the UK Government's efforts to encourage innovation by allowing 130% of qualifying R&D expenditure to be offset against taxable profits and allowing 14.5% of the lower of R&D losses or taxable losses to be paid as tax credits. In recent years, the tax credit has been unrestricted due to taxable losses exceeding R&D losses, although this was not the case for the 2019 claim. Had the 2019 claim been unrestricted, the amount claimed would have been £717,000 which is a fairer reflection of the Group's continued level of strategic investment activities.

The increase in revenue combined with the reduction in operating expenses has resulted in a return to operating profit of £25,000 (2018: £609,000 operating loss), the first time this has been achieved since the corresponding period six years ago. A profit for the period of £184,000 (2018: £89,000) resulted in a basic profit per share of 0.4p and a fully diluted profit per share of 0.3p (2018: basic and fully diluted profit per share of 0.2p).

Cash balances as at 30 September 2019 totalled £5,156,000 which compares with £3,623,000 as at 31 March 2019 and £3,228,000 as at 30 September 2018. The increase in cash balances is primarily driven by £1,841,000 of cash generated from operations (2018: £739,000) and also reflects the benefit of £422,000 proceeds from the disposal of a UK office (2018: £nil). It is also worth noting that the 2019 R&D tax claim totalling £460,000 was received shortly after the period end and does not form part of the cash balances as at 30 September 2019 (2018: R&D claim totalling £993,000 received prior to period end and included in the 30 September cash balances). 

The Group adopted IFRS 16 Leases with effect from 1 April 2019 using the full retrospective method. This has resulted in the Group recognising right of use assets and lease liabilities for all contracts that are, or contain, a lease. Instead of recognising an operating expense for its operating lease payments, the Group will instead depreciate its right of use assets and recognise interest on its lease liabilities. The impact on each line of the Consolidated Financial Statements is explained in Notes 1 and 6. 

Operational Review

Intercede is trusted by governments and large enterprises throughout the world. Where protecting data really matters, you will find MyID. The security, reliability and interoperability of MyID software sets it apart and is why we are proud to help many leading organisations around the world manage the secure digital identities they issue to citizens and employees. In addition to offering MyID as a market-leading credential management commercial off-the-shelf product, Intercede supplies MyID as a platform providing service providers with a range of software and service tools enabling them to embed digital identity into their own solutions.

For over 20 years Intercede has delivered solutions that truly test the interoperability of MyID because governments and large enterprises typically have complicated PKI (public key infrastructure). But we recognise that there are enterprises who are happy to follow best practice and just want a simple, pre-configured solution that protects their networks, systems and cloud-based resources with the most secure method of authenticating employees. We are therefore pleased to announce the release of MyID Professional, an easy to use and deploy software solution that enables enterprises to replace insecure passwords with the strongest form of multi-factor user authentication.

MYID PROFESSIONAL INCLUDES:

·     MyID Professional server software

·     Connectors to Microsoft Active Directory and Microsoft Certificate Services

·     Connectors with a wide range of leading smart cards and USB tokens

·     Connectors with hardware security modules, used to secure keys and sensitive data

·     Operator desktop for system administration and helpdesk operators

·     End-user client for simple self-service operations

·     Documentation covering installation, configuration and use 

MYID PROFESSIONAL CAN BE USED TO:

·     Secure Windows and network logon

·     Secure VPN and remote access

·     Protect cloud resources such as Microsoft Office 365

·     Sign and encrypt emails, protecting against spear-phishing attacks

·     Deploy PKI credentials for strong two-factor authentication to smart cards and USB keys

·     Enable simple self-service credential management at the user's own desktop, thereby reducing help desk costs

The establishment and further development of a simplified version of MyID will be more scalable and is therefore important for the Group's future growth prospects. By combining predefined business processes and out-of-the-box integration with common infrastructure components, MyID Professional will enable smaller organisations to step up to the strongest form of user authentication with least cost and risk. MyID Professional is available on a subscription basis via Intercede channel partners. 

MyID is now available in three product lines, thereby reflecting a growing product portfolio for an expanding addressable market ie:

1)   MyID Enterprise;

2)   MyID PIV; and

3)   MyID Professional.

Outlook

The actions taken to refocus the Group's strategy continue to drive improvements throughout the business. As in previous years, revenue is expected to be weighted towards the second half of the year Whilst the nature of Intercede's business and customer profile is such that the precise timing of orders is difficult to predict, the current sales pipeline and levels of bid activity continue to support management's revenue and profitability targets.

By order of the Board

Klaas van der Leest                                                                                                 Andrew Walker

Chief Executive Officer                                                                                               Finance Director

25 November 2019                                                                                                     25 November 2019

The Consolidated Statements of Comprehensive Income for the periods ending 30 September 2018 and 31 March 2019 have been restated to reflect the impact of IFRS 16 Leases (see Notes 1 and 6).